For the first time in history, more than half of all Americans would be on the federal dole.
The federal government’s system of entitlements is the largest money-shuffling machine in human history, and President Biden intends to make it a lot bigger. His American Families Plan—which he recently attempted to tie to a bipartisan infrastructure deal—proposes to extend the reach of federal entitlements to 21 million additional Americans, the largest expansion since Lyndon B. Johnson’s Great Society.
For the first time in U.S. history—except possibly for the pandemic years 2020 and 2021, for which we don’t yet have data—more than half of working-age households would be on the entitlement rolls if the plan were enacted in its current form. Contrary to Mr. Biden’s assertion that his plan “doesn’t add a single penny to our deficits,” his plan would add more than $1 trillion to the national debt over the next decade.
The American Families Plan proposes several new entitlement programs. One promises students the government will pick up the entire cost of community-college tuition; another promises families earning 1.5 times their state’s median income that Washington will cover all daycare expenses above 7% of family income for children under 5; still another promises workers up to 12 weeks of federally financed wage subsidies to take time off to care for newborns or sick family members.
The American Families Plan would follow longstanding government practice and make temporary emergency programs permanent. In March, Congress enacted the American Rescue Plan, which expanded Affordable Care Act subsidies and refundable tax credits for child care and low-wage workers. The expansions were sold as temporary measures to combat the effects of pandemic lockdowns. A month later, Mr. Biden asked Congress to make them permanent.
These programs extend eligibility for benefits high up the income ladder. Two-parent households with two preschool-age children and incomes up to $130,000 would qualify for federal cash assistance for daycare. Single parents with two preschoolers and incomes up to $113,000 would qualify. And some families with incomes over $200,000 would be eligible for health-insurance subsidies. Other parts of the plan, such as paid leave and free community college, have no income limits at all.
Our analysis shows that the American Families Plan would add 21 million Americans to the list of federal entitlement beneficiaries. With these additional recipients, 57% of all married-couple children would receive federal entitlement benefits, and more than 80% of single-parent households would be on the entitlement rolls.
The share of households receiving assistance would be higher in some areas of the U.S. than in others. This is primarily because federal eligibility for many of the American Families Plan’s programs, particularly its refundable tax credits, don’t account for geographical differences in incomes and living costs.
We estimate that most of the Biden plan’s entitlement benefits would go to middle- and upper-income households. Households in the upper half of the nonelderly income distribution would receive 40% of the new entitlement benefits.
Our estimates are for a full-employment economy, not one in recession. So the percentage of U.S. households receiving benefits from at least one federal entitlement program would only increase if the U.S. economy were to falter.
Where will the money come from to finance this largess? Mr. Biden claims that taxes on the rich will entirely finance his American Families Plan. But his proposed revenue heist falls woefully short of the plan’s true cost. Presidential budgets for years have been littered with gimmicks to hide their true expense. The American Families Plan is no exception.
The plan proposes that the $100 billion annual expansion of the child tax credit will suddenly expire at the end of 2025, reducing the tax credit from a high of $3,600 to $1,000. All other programs in the plan are assumed to be permanent. Why only phase out the child tax credit? The obvious answer: Its expiration reduces the 10-year estimated cost by $465 billion.
The gimmicks don’t stop there. The Biden administration proposes to use more than $200 billion in new business taxes to finance the American Families Plan. Amazingly, it also proposes to use that same money to finance future Medicare spending.
Properly accounting for these gimmicks, and the plan’s overly optimistic revenue assumptions from its Internal Revenue Service compliance initiatives, pushes the American Families Plan deficit to more than $1 trillion during the next 10 years. The president claims that his plan is part of a budget that is “putting the nation on a fiscally responsible path.” Hardly. If passed, it would accelerate the pace of entitlement expansions that began in the late 1960s. Improving the safety net is one thing, but spending more than $1 trillion on mainly middle-class entitlements and financing this expenditure with debt robs future generations while enriching today’s.
Mr. Cogan is author of “The High Cost of Good Intentions” and a senior fellow at Stanford University’s Hoover Institution. Mr. Heil is a policy fellow at Hoover.
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Appeared in the June 29, 2021, print edition.
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